Note 18 - Income Taxes

12 Months Ended

Mar. 29, 2015

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 18.    INCOME TAXES

    The following table presents domestic and foreign components income/ (loss) before income taxes (in thousands):

	March 29, 2015			March 30, 2014			March 31, 2013
United States	$	(50,428	)	$	(2,370	)	$	1,693
Foreign		6,310			(307	)		—
(Loss)/income before income tax	$	(44,118	)	$	(2,677	)	$	1,693

The components of the provision for (benefit from) income taxes as of the dates indicated below were as follows (in thousands):

	March 29, 2015			March 30, 2014			March 31, 2013
Current:
Federal	$	828		$	(1,350	)	$	(1,255	)
State		11			(93	)		(73	)
Foreign		404			(81	)		114
Total current	$	1,243		$	(1,524	)	$	(1,214	)
Deferred:
Federal	$	39		$	(6,807	)	$	23
State		—			(147	)		2
Foreign		(393	)		—			—
Total deferred	$	(354	)	$	(6,954	)	$	25
Total provision for (benefit from) income taxes	$	889		$	(8,478	)	$	(1,189	)

Foreign income/ (loss) included in consolidated pre-tax income for the periods indicated below were as follows (in thousands):

	Fiscal Years Ended
	March 29, 2015		March 30, 2014			March 31, 2013
Foreign income/(loss)	$	6,310	$	(307	)	$	—

Exar records U.S. income taxes on the undistributed earnings of foreign subsidiaries unless the subsidiaries' earnings are considered indefinitely reinvested outside the U.S. We plan to make a one-time $45.0 million repatriation in fiscal year 2016, and as of March 29, 2015, we recognized a $8.2 million deferred tax liability for the future income associated with this repatriation, net of previously taxed amounts. There are minimal US federal and state taxes as a result of this one time repatriation due to the availability of net operating loss carryovers. As of March 29, 2015, the cumulative amount of undistributed earnings considered indefinitely reinvested was $49.6 million. Despite the one-time planned repatriation, no incremental deferred tax liability has been recognized on the basis difference created by these earnings since it is our intention to utilize those earnings in our foreign operations. Upon distribution of those earnings in the form of a dividend or otherwise, we would be subject to both United States income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various foreign countries. Computation of the potential tax impact of the unremitted earnings is not practical.

Significant components of our net deferred taxes are as follows as of the dates indicated (in thousands):

	March 29, 2015			March 30, 2014
Deferred tax assets:
Reserves and expenses not currently deductible	$	10,328		$	7,973
Net operating loss carryforwards		121,948			123,826
Tax credits		30,214			27,259
Losses on investments		1,032			1,832
Unrealized investment loss		—			80
Intangible assets		8,406			6,838
Deferred margin		3,293			3,968
Depreciation		—			642
Total deferred tax assets		175,221			172,418
Deferred tax liabilities:
Depreciation		(915	)		—
Non-goodwill intangibles		(3,159	)		(6,560	)
Foreign earnings		(8,164	)		—
Total deferred tax liabilities		(12,238	)		(6,560	)
Valuation allowance		(163,129	)		(165,924	)
Net deferred tax liabilities	$	(146	)	$	(66	)

The valuation allowance decreased $2.8 million, $8.0 million and $6.7 million in fiscal years 2015, 2014 and 2013, respectively. The change in fiscal year 2015 was primarily due to increase of deferred tax liabilities related to foreign earnings.

Reconciliations of the income tax provision at the statutory rate to our provision for (benefit from) income tax are as follows as of the dates indicated (in thousands):

	March 29, 2015			March 30, 2014			March 31, 2013
Income tax benefit at statutory rate	$	(15,441	)	$	(937	)	$	593
State income taxes, net of federal tax benefit		(64	)		(1	)		60
Deferred tax assets not benefited		9,052			(1,972	)		(378	)
Tax credits		(1,182	)		(757	)		(539	)
Stock-based compensation		435			(427	)		258
Foreign rate differential		(1,927	)		156			148
Prior year tax expense true-up		—			(10	)		11
Fair value adjustment		(1,527	)		(3,732	)		—
Investment in US property		8,840			45			54
OCI tax effect clearance		828			—			—
Acquisition cost		2,092			293			—
Others, net		(217	)		(1,136	)		(1,396	)
Provision for (benefit from) income taxes	$	889		$	(8,478	)	$	(1,189	)

As of March 29, 2015, our federal, state and Canada net operating loss carryforwards for income tax purposes were as follow (in thousands):

Federal net operating loss carryforwards	$	323,751
State net operating loss carryforwards	$	111,084
Canada net operating loss carryforwards	$	23,785

If not utilized, some of the federal net operating loss carryovers will begin expiring in fiscal year 2019, while the state net operating losses will begin to expire in fiscal year 2016. The Canadian net operating loss carryovers will begin expiring in fiscal year 2022, if not utilized.

As of March 29, 2015, our federal, state and Canada tax credit carryforwards, net of reserves, were as follows (in thousands):

Federal tax credit carryforwards	$	10,453
State tax credit carryforwards	$	20,165
Canada tax credit carryforwards	$	5,283

Federal tax credits will begin to expire in fiscal year 2018. State tax credits are carried forward indefinitely. The Canadian tax credits will begin to expire in fiscal year 2018.

Utilization of these federal and state net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions.

We have evaluated our deferred tax assets and concluded that a valuation allowance is required for that portion of the total deferred tax assets that are not considered more likely than not to be realized in future periods. To the extent that the deferred tax assets with a valuation allowance become realizable in future periods, we will have the ability, subject to carryforward limitations, to benefit from these amounts. Approximately $8.4 million of these deferred tax assets pertain to certain net operating loss and credit carryforwards that resulted from the exercise of employee stock options. When recognized, the tax benefit of these carryforwards is accounted for as a credit to additional paid-in capital rather than a reduction of the income tax provision.

Uncertain Income Tax Benefits

A reconciliation of the beginning and ending amount of the unrecognized tax benefits during the tax year ended March 29, 2015 is as follows (in thousands):

	Amount
Unrecognized tax benefits as of April 1, 2012		16,820
Gross decrease related to prior year tax positions		(271	)
Gross increase related to current year tax positions		292
Lapses in statute of limitation		(1,376	)
Unrecognized tax benefits as of March 31, 2013		15,465
Gross increase related to prior year tax positions		92
Gross increase related to current year tax positions		487
Lapses in statute of limitation		(1,880	)
Unrecognized tax benefits as of March 30, 2014	$	14,164
Gross increase related to prior year tax positions		252
Gross increase related to current year tax positions		3,305
Lapses in statute of limitation		(85	)
Unrecognized tax benefits as of March 29, 2015	$	17,636

Of the total gross unrecognized tax benefits of $17.6 million as of March 29, 2015, $14.7 million, if recognized, would impact the effective tax rate before consideration of the valuation allowance.

The total unrecognized gross tax benefits were as follows as of the dates indicated (in thousands):

	March 29, 2015		March 30, 2014
Unrecognized gross tax benefits	$	17,636	$	14,164
Less: amount used to reduce deferred tax assets		13,285		13,370
Net income tax payable(1)	$	4,351	$	794

(1) Included in other non-current obligations line item in consolidated balance sheet.

We believe that it is reasonably possible that the amount of gross unrecognized tax benefits related to the resolution of income tax matters could be reduced by approximately $1.4 million during the next 12 months as the statutes of limitations expire, which would decrease the provision for income taxes and increase our net income.

Estimated interest and penalties related to the underpayment of income taxes were classified as a component of the provision for income taxes in the consolidated statement of operations. Accrued interest and penalties consisted of the following as of the dates indicated (in thousands):

	March 29, 2015		March 30, 2014
Accrued interest and penalties	$	1,187	$	83

Our major tax jurisdictions are the United States federal and various states, Canada, China, Hong Kong and certain other foreign jurisdictions. The fiscal years 2004 through 2013 remain open and subject to examinations by the appropriate governmental agencies in the United States and certain of our foreign jurisdictions.

On December 19, 2014, the President signed into law The Tax Increase Prevention Act of 2014, which retroactively extends more than 50 expired tax provisions through 2014. Among the extended provisions is the Sec. 41 research credit for qualified research expenditures incurred through the end of 2014. The benefit of the reinstated credit did not impact the income statement in the period of enactment, which was the third quarter of fiscal year 2015, as the research and development credit carryforwards are offset by a full valuation allowance.

ASU No. 2013-11 – US GAAP previously did not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. On a jurisdictional basis, Accounting Standard Update (“ASU”) No. 2013-11 generally requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Exar has properly applied this guidance to its required SEC disclosures. The adoption of this guidance did not have any material impact on our financial position, results of operations or cash flows.